ASSOCIATED BRITISH PORTS V FERRYWAYS NV

[2009] EWCA Civ 189, Court of Appeal (Civil Division), the Master of the Rolls, Lord Justice Jacob and Lord Justice Maurice Kay, 18 March 2009

Contracts – Guarantee provided by second defendant by way of letter of agreement – Whether primary or secondary liability – Whether discharged by subsequent variations to the principal agreements

The first defendant had provided a short sea RoRo ferry service between Oostende and Ipswich and had entered into a series of agreements, some adding to and some replacing earlier agreements with ABP to provide port services under terms as to eg handling charges, turn-around time, port charges, minimum throughput obligations, shortfall and the obligation by ABP to provide ‘slave trailers’. The second defendant, MSC, provided a guarantee for Ferryways. Eventually, Ferryways went into insolvent liquidation. The appealed judgment was that of Mr Justice Field, reported at [2008] 2 Lloyd’s Rep 353, wherein he held that the second defendant had been discharged from liability as a result of the variation of the contract between ABP and Ferryways. This was the limited appeal on just one issue: whether the instrument in question was an indemnity, entailing primary liability, or a guarantee, entailing secondary liability. If it was an indemnity, it would not be affected by a variation in the contract between the creditor and the debtor. The Court of Appeal held, dismissing the appeal, that on a true construction of the actual words of the promise, the undertaking in question was a guarantee. The words ‘at all times’ were not sufficient to convert the undertaking to a primary liability. There had been an obligation to meet Ferryways’ liabilities ‘as and when they fell due’; however the subsequent Time to Pay Agreement did not contain the common provision found in such agreements whereby the agreement is said not to discharge the surety. The Court of Appeal also dealt, obiter, with the question whether a ‘letter of comfort’ could have binding effect and though on balance that it could not but that it would be a matter of construction of the particular letter of comfort.